A divorce has ramifications that may reverberate through your life in ways you did not consider. One area you may want to delve deeper into is your tax return.
Filing federal taxes after your divorce may surprise you in both good and bad ways. Get a basic overview of the tax implications you may face after your divorce so you can know what to expect.
Claiming children on tax returns
If you have children together, you and your former spouse will need to decide who gets to claim them on your taxes. Since you will file as a single individual, declaring a child may lower your tax bracket and give you money back. Depending on where you fall on the income scale, not claiming children may create a tax burden, or it may not do much. The higher your tax bracket, the less likely claiming a child will give you relief. However, it is typical for parents with multiple children to split them or rotate who gets to claim them for a given tax year. This gives you equal rights to gain deductions.
Dividing up assets
Some assets may mean higher tax implications immediately after divorce. For example, if you decide to split up a retirement account at the time of your divorce, you may have to pay an early withdrawal fee plus all the taxes due on the total amount. Cash payments or checking accounts do not typically carry tax burdens. The sale of stocks and bonds, however, does. You may want to negotiate lump-sum cash payments or use a trust to keep yourself safe from tax payments.
When negotiating a divorce settlement, knowing how these things will affect your taxes may assist you in compromising. Reaching an agreement may facilitate a healthy move forward in your life.